Sullivan, Robert P., Docket No. 320

Decision and Order

DECISION AND ORDER

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I. Procedural History

The Petitioner initiated these adjudicatory proceedings onDecember 8,1986 by filing an Order to Show Cause pursuant to theCommission's Rules of Practice and Procedure, 930 CMR 1.01 (5)(a).The Order alleged that Respondent Robert P. Sullivan had violatedG.L. c. 268A, s.17(c) on three occasions, Specifically, Respondentallegedly acted as agent for the Bradford Development Corporation(BDC) by personally appearing before the Tewksbury Planning Board(Board) on August 13, September 26, and October 9,1984, and bydiscussing particular matters in which the Town of Tewksbury (Town)was a party or had a direct and substantial interest.

The pre-hearing conference was held on July 30, 1987, at whichtime the parties waived the adjudicatory hearing and agreed tostipulated facts. 930 CMR 1.01(9). Respondent has raised twoprocedural defenses. The first is that Petitioner's action isbarred by a two year statute of limitations contained in G.L. c.260, s.5. The other procedural defense is that Petitioner's failureto initiate an Order to Show Cause within 90 days of the initiationof a preliminary inquiry entitles Respondent to an Order ofDismissal. Specifically, on June 10,1986, the Commission voted toinitiate a preliminary inquiry into whether Respondent violateds.17. On September 15, 1986, the Commission voted to extend thepreliminary inquiry of the case. Therefore, the vote to extend tookplace 97 days after the initial vote to initiate the preliminaryinquiry.

The parties filed briefs and presented oral arguments beforethe Commission on October 5,1987. In rendering the Decision andOrder, the Commission has considered the evidence and arguments ofthe parties.

II. Findings of Fact

1. Mr. Sullivan at all relevant times served as an electedmember of the Board. He has been on the Board for seven years.

2. In 1982, the BDC began development of the Patten GreenCondominiums in the Town. Mr. Sullivan was President of BDC.Frederick Baldwin was treasurer and clerk. Mr. Sullivan and Mr.Baldwin each owned a 50 percent interest in BDC and are the twodirectors.

3. Prior to forming BDC with Mr. Sullivan, Mr. Baldwin hadHodgkin's Disease, for which he had been treated. Due to his healthproblems, Mr. Baldwin formed BDC so that Mr. Sullivan could assumesome of the work that Mr. Baldwin had previously performed himselfas a developer. Mr. Baldwin needed to avoid tiring himself and didnot want to work in the evening hours.

4. The Town, under the authority of the Board, requires eachmulti-family dwelling developer and the financing bank to enterinto a tri-party agreement with the Town, by which the bank retains$500 per unit from money it is providing the developer until properrecreational facilities are constructed at the development BDC wassubject to this requirement.

5. At its meeting of August 13, 1984,[1] Mr. Sullivan steppeddown as a member of the Board for the discussion on Patten Greenand remained in the room. The remaining Board members discussed thepossible waiver or release of 26 units from the requirement of atri-party agreement as described in paragraph 4 above. Mr. Sullivanstated to the Board that he was seeking the waiver or release ofunits from an agreement because a recreational structure alreadyconstructed on the property cost more than the $500 per unitrequired to be held back for 26 units. Mr. Sullivan did notparticipate in his capacity as a Board member in the subsequentvote to release the 26 units from the requirements of theagreement. No other person employed by or associated with BDC waspresent at this meeting.

6. At the Board meeting on September 26,1984, Mr. Sullivanstepped down as a member of the Board for the discussion on PattenGreen and remained in the room. There was an agenda item regardingwhether the special permit granted by the Board for theconstruction of Patten Green allowed for loft space in the atticareas of two condominium units. The remaining Board membersdiscussed BDC's difficulties in obtaining occupancy permits, whichwere required for completion of the sale of two condominium unitsat Patten Green. The occupancy permits were being denied becausethe Town's building department claimed that BDC had added a floorto the units in contravention of the original special permit. Theremaining Board members discussed the building department's denialof the occupancy permits. Mr. Sullivan stated to the Board that theadditional floor was a loft which had been included in the originalplans.

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He stated that two of the units had pull-down stairs installed withthe loft space above. Mr. Sullivan also stated that the roof sizewas not increased as a result of the installation of the pull-downstairs and loft. No other person employed by or associated with BDCwas present at this meeting. The agenda item regarding the loftspace was continued to the meeting of October 9,1984.

7. At the Board meeting of October 9,1984, Mr. Sullivan steppeddown as a member of the Board for the discussion on Patten Greenand remained in the room. The remaining Board members againdiscussed the building department's determination regarding theoccupancy permits for the two condominium units. A letter datedOctober 4,1984, from the building inspector regarding the two unitsstated that he must refuse a building permit to add a loft in theattic of the units. The letter further suggested that BDC returnto the Board to seek an amendment of the special permit and statedthat the plans submitted to the building inspector did not showlofts in the two units. Mr. Sullivan then stated that the plans didshow an alternate loft. A motion was made and seconded to set upa public hearing to consider amending the special permit. The Boardvoted to set up such a hearing. Mr. Sullivan did not participatein his capacity as a Board member in this vote. No other personemployed by or associated with BDC was present at this meeting.

III. Decision

A. Statute of Limitations

There is no dispute that the Order to Show Cause was issuedwithin three years after the violations alleged therein, asrequired by the regulation. Nor does Respondent allege as a defensethat the three year statute of limitations promulgated in 930CMR 1.02(10) has run. Therefore, there was no need for Petitioner toshow that a disinterested person learned of the violation no morethan three years before the Order was issued by affidavit orotherwise. See, 930 CMR 1.02(1 0)(c).

Respondent argues that 930 CMR 1.02(10) is unlawful because itis inconsistent with G.L. c. 260, s.5, which establishes a two yearstatute of limitations in actions for penalties under penalstatutes if the penalty "is given .. to the Commonwealth." TheCommission concludes that this statute does not apply because anenforcement proceeding pursuant to G.L. c. 268B, s.4 is notreasonably construed as enforcement of a penal statute.

The essence of a civil enforcement action under G.L. c. 268B isa breach of official duty or fiduciary obligation of a publicemployee.

In upholding the use of a civil standard of proof in Commissionproceedings, the Supreme Judicial Court has held, "The sanctionswhich the Commission may impose do not implicate particularlyimportant individual interests or rights." Craven v. State EthicsCommission, 390 Mass. 191,200(1984). The controlling purpose of anadjudicatory proceeding under G.L. c. 268B, s.4 is not punishment.The Commission's purpose is remedial in nature, to enforce civillythe provisions of G.L. c. 268A, to provide advice and education,(see, G.L. c. 268B, s.3(g)), and to act as a repository ofdisclosures and other information. See, c. 268A, s.6, s.7(d).Although G.L. c. 268A provides for a criminal penalty enforceableby criminal law enforcement agencies, as well as civil relief, theexistence of a criminal penalty does not defeat the broad civilremedial purposes of G.L. c. 268A and G.L. c. 268B. The fact thatthe Commission may potentially impose a civil fine after anadjudicatory hearing does not render the proceeding penal. TheCommission's regulation, establishing a three year statute oflimitations, reasonably rejects the application of G.L. c. 260, s.5to a civil administrative agency which has no criminal enforcementauthority.

The reasonableness of the regulation is further supported byexamination of precedents. The Supreme Judicial Court held in thecase of Beinecke v. Nantucket, 379 Mass. 345(1979) that the essenceof an action under G.L. c. 268A, s.21 is a breach of official dutywhich sounds in tort, and therefore the three year statute oflimitations applies.[3]

A regulation by a duly constituted administrative agency has thefull force and effect of law and is entitled to "all rationalpresumption in favor of its validity... Levy v. Board ofRegistration, 373 Mass. 519,525(1979) cited in Borden v.Commissioner of Public Health, 388 Mass. 707(1984). Given the broadcivil remedial nature of an enforcement proceeding under G.L. c.268B, s.4 and relevant prior case law, there is no inconsistencybetween 930 CMR 1.02(10) and G.L. c. 260, s.5 so as to render theregulation void.

B. The Seven Day Delay

There is no merit to Respondent's contention that the delay inthe vote to extend the preliminary inquiry, which took place 97days after the initial vote to initiate the preliminary inquiry,requires dismissal of the case. Dismissal is not required as amatter of law because the 90 day rule derives from internalenforcement policy, and not by statute, regulation or otherauthority having the force of law; therefore, the policy is notjurisdictional.

It is well established that "a statute imperative in phrase ...where it relates only to the time of performance of a duty by apublic officer and does not go to the essence of the thing to bedone ...is only a regulation

Even assuming that Respondent has suffered expense, humiliation,anxiety and public suspicion as a result of Petitioner'sproceedings,[4] there has been no showing that Respondent sufferedprejudice as a result of the seven-day delay in initiating thepreliminary inquiry. This case is thus indistinguishable from thecase of In the Matter of Thomas W. Wharton, 1984 Ethics Commission182, where we held:

The 90-day rule is not based on any statute, but reflects theCommission's desire that inquiries be conducted asexpeditiously as possible. Its principle purpose is to make theCommission aware of the length of inquiries and to require itsacquiescence for them to go beyond 90 days. That purpose issatisfied whether the extension is granted before or after theinitial 90-day period ends. With respect to the time periodafter the finding of reasonable cause, it should be noted thatneither the provisions of c. 268B dealing with investigations(see s.4) nor the Commission's procedures impose anyrequirement as to when the Order to Show Cause must issue. Hereagain, there is no showing that Mr. Wharton was prejudiced orthat the Petitioner gained any undue advantage by the delayAccordingly, this Motion to Dismiss is denied, Accordingly, theseven-day delay in initiating the preliminary inquiry does notrequire dismissal.

C. Substantive Violations

The relevant portion of s.17(c) applicable to this case statesthat no municipal employee shall, otherwise than in the properdischarge of his official duties, act as agent for anyone inconnection with any particular matter in which the same city ortown is a party or has a direct and substantial interest.Respondent has conceded all of the elements of a s. 17(c)violation, except the element of acting as agent. Respondent agreesthat he was a municipal employee at all relevant times, He alsoagrees that the August 13,1984 Board discussion and vote on thewaiver or release of 26 units from a tri-party agreement were inconnection with a particular matter in which the Town of Tewksburyis a party or has a direct and substantial interest. He furtheragrees that the determination of whether to require a tri-partyagreement between BDC, the Town and the financing bank was aparticular matter in which the Town of Tewksbury is a party or hasa direct and substantial interest, and the September 26 and October9,1984 Board discussions and vote regarding the Town buildingdepartment's denial of occupancy permits for two Patten Greencondominium units were in connection with a particular matter inwhich the Town of Tewksbury is a party or has a direct andsubstantial interest. Respondent further agrees that the occupancypermits sought by BDC are particular matters in which the Town isa party or has a direct and substantial interest. Therefore,Respondent acted in connection with particular matters in which theTown had a direct and substantial interest, This leaves the issueof whether Respondent acted as "agent" within the meaning of theconflict law.

The Commission concludes that Respondent, as president, directorand 50% stockholder of BDC was acting as agent for BDC in hisdiscussions with the Planning Board. The term agent is not definedin G.L. c. 268A and is not susceptible to a simple definition andcan differ widely in meaning depending on the context in which itis used. Therefore, it is incumbent upon the Commission tointerpret the term in light of the overall purpose and intent ofG.L. c. 268A. Massachusetts Organization of State Engineers andScientists v. Labor Relations Commission, 389 Mass, 920,924(1983),Furthermore, the Commission must be guided in its interpretationby certain general principles. First, the substantive provisionsof the conflict law should be construed "broadly" to carry out theremedial purposes which the statute manifests, United States v.Evans, 572 F. 2d 455, 480 (5th Cir., 1978). Secondly, the Commissionhas adopted the approach of the federal courts construing thefederal counterpart of s.17(c) which have utilized an expansivedefinition of the term agent and has stated that the definition isnot limited to its "strict common law notion," See, United Statesv. Sweig, 316 F. Supp. 1148, 1157 (S.D.N."". 1979). In the Matterof James M. Collins, 1985 Ethics Commission 228.

The basic principle set forth by s.17(c) is that "publicofficials should not in general be permitted to step out of theirofficial Rules to assist private entities or persons in theirdealings with government." Perkins, The New Federal Conflict Law,76 Harv. L. Rev. 113, 1120 (1963). Regardless of whether any evilresults from the conduct, "confidence in government is underminedbecause the public cannot be sure that no [evils] will result."Buss, The Massachusetts Conflict of Interest Statute: An Analysis,45 B.U.L. Rev. 299,322(1965). Buss suggests that "merely speakingor writing on behalf of a non-state party would be acting as agent."Buss, supra, at 326. Consistent with the above remedialpurpose, the Commission has concluded that the distinguishing factor of

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acting as agent within the meaning of the conflict law is "actingon behalf of" some person or entity, a factor present in acting asspokesperson, negotiating, signing documents and submittingapplications. EC-COI-84-116.

Upon reviewing the facts, the Commission concludes thatRespondent was acting on behalf of BDC and Mr. Baldwin, the othershareholder, The fact that Respondent may have been actingconsistent with his own personal interest does not negate thisconclusion. Members of the Board were dealing with the corporateentity and not with Respondent as an individual. The tri-partyagreement was not an agreement between the Town, the financing bankand himself. The financing bank provided money to the corporateentity. The agreement involved the Town, the bank and the corporateentity. Similarly, the two Patten Green Occupancy permits whichwere denied by the Building Department were not being denied toRespondent individually. They were being denied to the corporateentity. Therefore, the benefit of a vote to release 26 units froma tri-party agreement would not run to Respondent individually, butrather would go to the corporate entity. Likewise, the need to seekan amendment to the special permit, as a result of the denial ofoccupancy permits, was not a requirement thrust upon Respondentindividually; rather it was a requirement thrust upon the corporateentity.

The Commission has previously dealt with an analogous case, InEC-COI-84-117 the Commission held that where a trust is a distinctlegal entity, a trustee acts on behalf of the trust entity. Asstated in said opinion:

As a trustee, however, you are acting on behalf of another. Asthe legal representative of a trust, any appearances beforemunicipal boards are on behalf of that trust, a distinct legalentity. Regardless of whether you and immediate family membersare the sole beneficiaries of that trust, such appearances fallwithin the purview of the s.17(c) prohibition.

This precedent is determinative of this case. In this case BDC isa distinct legal entity[5] and Respondent acted as representativeof the corporation.

Although the Commission is not restricted to the common lawdefinition of agency, a review of the common law supports theCommission's finding of agency within the meaning of the conflictlaw. In some states the mere fact that a person is a corporateofficer in a closely held corporation results in the individual'sstatus as an agent for the corporation. See e.g. Sons of Norway v.Boomer, 519 P.2d 28,32 (Wash., 1974). Massachusetts has held thatofficers who are also shareholders and/or directors are agents ofthe corporation for certain purposes. See e.g. Commonwealth v.Colonial Motor Sales Inc., 11 Mass App. Ct. 800, 811 (1981) (agencyfound for purposes of liability); Kanavos v. Hancock Bank andTrust Co., l4 Mass App Ct. 326, 332 (1982) (agency exists whereperson's actions are within scope of corporation's ordinarybusiness); Comeau Co. Builders Inc. v. Paradiso, 39 Mass App. Dec86 (1960) (officer was agent for purposes of execution of acontract); and Juergens v. Venture Capital Corp., 1 Mass App. Ct.274, 278 (1973) (president and major stockholder was agent forpurposes of granting refunds to stockholders seeking to returnpurchased shares).[6]

The Commission need not decide that a president, director andstockholder of a closely held corporation is an agent of acorporation in all situations for conflict of interest lawpurposes. It is sufficient to conclude that such an officer is anagent of the corporation in the ordinary scope of carrying out itsusual business before a municipal agency on the facts of the case.It is stipulated that Mr. Baldwin delegated management to Mr.Sullivan due to Mr. Baldwin's ill health. Appearing before theBoard regarding the tri-party agreement and occupancy permits waswithin the ordinary course of developing Patten Green Condominiums.

Directors and officers of a corporation in charge of itsmanagement, in the performance of their corporate duties, are underobligations of trust and confidence in all of its regular dealingsto the corporation and to it's stockholders. 13 Am Jur,Corporations, part XVII, sub 1, cited in Holloway v. InternationalBankers Life Ins., Co., 354 S.W. 2d 198, 203 (Texas, 1962).Massachusetts has applied this principle to closely heldcorporations. In Donahue v. Rodd Electric Co. of New England, 367Mass. 578, 586 (1975), it was held that stockholders in a closelyheld corporation owe one another a fiduciary duty in the operationof a business. Id. at 586, 593. The Donahue case states that eachstock owner is dependent on the other for the conduct of theaffairs of the business. There is an obligation of trust,confidence, and absolute loyalty. Self-seeking conduct on the partof any stockholder regarding the corporate business cannot betolerated because it might endanger the survivability of thecorporation. Id. at 587. Given the scrupulous fidelity and strictduty of loyalty that the Respondent owed to the corporation and theother stockholder it cannot be assumed that the Respondent wasadvancing his own personal interest exclusively in his discussionswith the Planning Board regarding the affairs of the corporation.Given the fiduciary duty that exists among stockholders, membersof the Planning Board would reasonably presume or infer thatRespondent was acting on behalf of, and with the knowledge andconsent of, the other stockholder(s) in the corporation; for if hewere not doing so, he would be in violation of his fiduciary duty.

If the conduct of the parties is such that an inference iswarranted that one is acting on behalf of and with knowledge andconsent of another, an agency exists as a matter of law. Choatesv. Board of Assessors of Boston, 304 Mass. 298,300(1939). There isno evidence in the

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record that Respondent was engaged in self-seeking conduct whichwas inconsistent with the interests of the corporation or theknowledge or consent of his business partner.[7] Therefore, anagency exists even under the common law.

In conclusion, Respondent had the authority to, did in fact,speak in furtherance of the interests of BDC. When one person actson behalf of another person or entity, he is an agent for conflictlaw purposes. See, LaBonte v. White Construction Co., Inc. 363Mass. 4l (1973). U.S. v. Sweig, 316 F. Supp, 1148, 1157 (S.D.N.Y.1979). Therefore, Respondent violated G.L. c. 268A, s.17(c) on twooccasions: the Board meeting of August 13,1984 and the Boardmeeting of September 26,1984 (continued to October 9,1984).

IV. Sanction

The Commission may require a violator to pay a civil penalty ofnot more than two thousand dollars for each violation of G.L. c.268A. G.L. c. 268B, s.40)(3). Although the potential maximum finein this case is $4,000, we believe that the imposition of themaximum fine is not warranted. Respondent made an effort to complywith G.L. c. 268A by not participating as a municipal employee inparticular matters in which the corporation had a financialinterest. See G.L. c. 268A, s.19. There is insufficient evidencefor the Commission to assume that Respondent's participation hadany determinative effect on the outcome of decisions made by theBoard. Finally, there was no effort by Respondent to conceal hisparticipation.

The violations in this case, on the other hand, cannot be viewedas technical. As a member of the Board, Respondent was in aposition to exert, consciously or subconsciously, undue influenceupon the actions of the other members of the Board. The publiccould reasonably ask how members of the Board could make anobjective, unbiased decision when a presentation was being made byone of the Board's own members, who had just previouslyparticipated in official deliberations. The very credibility andimpartiality of the Board's decision-making process may be calledinto question when Board members are permitted to speak on behalfof private entities before other Board members. Moreover, there isno evidence that the Respondent sought advice as to the proprietyof his conduct prior to engaging in what an ordinary person wouldunderstand to be questionable. Therefore, a fine reflecting thesefacts is appropriate.

V. Order

On the basis of the foregoing pursuant to its authority underG.L. c. 268B, s.4, the Commission orders Mr. Sullivan to pay onethousand dollars ($1,000) to the Commission as a civil penalty forviolations of G.L. c. 268A, s.17(c).

DATE ISSUED: October 30, 1987

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[1] All of the Board meetings referred to in the findings of factwere in the evening hours.

[2] Statute of Limitations: (a) An order to show cause must beissued within three (3) years after a disinterested person learnedof the violation. (b) A respondent must set forth affirmatively astatute of limitations defense. (c) When a statute oflimitations defense has been asserted, the petitioner will have the burden ofshowing that a disinterested person learned of the violation nomore than three (3) years before the order was issued. That burdenwill be satisfied by: 1. an affidavit from the investigatorcurrently responsible for the case that the Enforcement Division'scomplaint files have been reviewed and no complaint relating to theviolation was received more than three (3) years before the orderwas issued, and 2. with respect to any violation of c. 268A otherthan s.23, affidavits from the Department of the Attorney Generaland the appropriate office of the District Attorney that,respectively, each office has reviewed its files and no complaintrelating to the violation was received more than three (3) yearsbefore the order was issued.

[3] Even in the absence of a duly promulgated regulation, the useof a three year statute of limitations codified in G.L..c. 260,s.2A would be appropriate to this case. The essence of theallegation of violations of s.17(c) is that Respondent violated hisduty to the public, which sounds in tort.

[4] This claim was made by Respondent's attorney, although thereis nothing in the record to support it.

[5] The fact that BDC is a close corporation does not mean it doesnot have a status separate from its principals. A closely heldcorporation retains the benefits peculiar to the corporate formsuch as limited liability, perpetuity, and the like. See Donahuev. Rodd Electric Co. of New England, Inc. 367 Mass 578, 586 (1975).Even if we were to disregard the corporate entity, we wouldconclude that Respondent was acting on behalf of his "businesspartner," Mr. Baldwin. (see Findings of Fact, paragraph 3).

[6] On the other hand, an officer would not be deemed an agent forall purposes, such as selling most of the assets of the corporationin the absence of express authority. See Kanavos, infra.

[7] The presence of a recognized spokesperson for the corporation,other than Respondent, such as an attorney. might dispel theappearance of an agency, but the record specifically precludes afinding of other representation. (see Findings of Fact, paragraph 7).